Dynamic Panel Data Analysis of the Relationship between Economic Freedom and Tourism

Abstract

This paper
explores the dynamic relationship between economic freedom and tourism industry.
In addition, the impact of economic growth is controlled in the extended model.
Balanced panel
data are collected for 100 countries over the period 2002-2015. The methodology
includes panel data econometrics. Therefore, models are initially estimated
using fixed and random effects models. Moreover, models are estimated using
linear dynamic panel data estimators based on GMM framework. The results of
linear static panel data estimators indicate a significant positive impact of
economic freedom on tourism in both, initial and extended model. Stronger
impact is reported in initial model. Dynamic panel data models confirm these
results with the stronger impact reported in extended model. Given the importance
of tourism industry, this paper suggests that governments should do necessary
changes to foster the economic freedom since it is found to be an important
factor to attract the foreign tourists.